The Big Oil Crash of the 1990s

It is critical for long-term investors not to be swayed by what other people think, what the rest of the world thinks, or anything like that. This is obviously easier said than done. I’d like to direct your attention to the cheap oil of the 1990s, and discuss three things: the headline risk that existed at the time, the investment returns that occurred during this time, and the changes in the price of oil’s fundamentals that occurred during this 1990-1998 time frame.

In September of 1990, the price of oil spiked to $60.57 per barrel (I’m giving figures that are adjusted for inflation using 2014 statistics). This was a significant uptick from the $35-$40 range that was the world’s oil price habit during the last five years of the 1980s. Saddam Hussein had accused the Emirate of Kuwait of using slant drilling techniques to steal Iraqi oil, and this price spike occurred during Iraq’s seventh month occupation of Kuwait in which Saddam Hussein ordered his troops to burn down over 600 Kuwaiti oil wells.

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